Wall Street Brokers Seek Out Greener Pastures

This post first appeared on Minyanville.

Wall Street securities brokers are having a tough go of it.

With nearly $7 trillion in US equity value wiped out since the bear market began, assets under management -- a key component of brokers' earnings -- are down sharply. Trading activity has slowed too, and with it, the fees they generate to arrange transactions.

Some brokers are leaving firms like Morgan Stanley (MS) and Merrill Lynch (BAC) on their own accord, seeking the freedom of trading their own account. Others are being shown the door or leaving Wall Street altogether. Low producers are faring the worst - at Swiss banking giant UBS (UBS) 600 brokers that bring in less than $260,000 in annual fees are losing their jobs. According to the Wall Street Journal, 2009 is on pace to see the biggest exodus of brokers in 15 years.

And of the myriad headwinds facing today's broker, the greatest is perhaps the public's growing aversion to risk.

Money has been moving away from stocks and bonds -- the typical broker's cash cows -- and into the relative safety of money-market funds and secured deposits. These low-risk investments carry paltry fees, much to brokers' chagrin. But with our economic future still highly uncertain, the investing public is coming to appreciate Mark Twain's adage that the return of investment trumps the return on investment.

This isn't just some transitory shift away from risk that will swing back as soon as the economy gives the all-clear (as if such a definitive message even exists). Americans' education on the perils of too much risk-taking without enough reward is ongoing, and those that believe we're at the bottom of this economic cycle have a fundamental misunderstanding of how we arrived at this juncture in the first place.

Decades of easy money and a government complicit in bailing out the most reckless risk-takers fostered a generation of economic actors with no frame of reference for truly challenging economic times. This mindset -- the entrenched belief that "what goes down must then go up" -- is still pervasive. It's changing, to be sure, but these are time-intensive structural shifts that can't be measured in tweets.

As risk aversion grows, savings increases, and thrift becomes mainstream, the old way of investing and spending is beginning to seem like the distant past. Make no mistake, this is a positive change; one that will enable our economy -- and indeed our country -- to build a stronger foundation from which real, sustainable economic expansion and an increase in our standard of living can grow.

The Five Questions You MUST Ask Your Realtor

This post first appeared on Minyanville and Cirios Real Estate.

As a growing number of economists, pundits and real-estate professionals assure us the housing market's worst days are over, prospective home buyers need a trusted advocate to make sure they don't end up on the wrong side of someone else's trade.

More often than not, that person will come in the form of a real-estate professional working on the buyer's behalf and earning a commission for their trouble. Below are 5 simple questions you can ask to gauge whether a given candidate is looking out for your best interests - or his or her own.

But first, a word on terminology.

The terms "agent," "broker" and "realtor" are often thrown around interchangeably. This isn't exactly right. While laws differ from state to state, acquiring a broker's license typically requires a series of courses on real estate practices, principals, finance, law, appraisal and the escrow process. A broker can use his license to form a brokerage, and the company can then perform services as a licensed entity.

In many states (like California) a licensed broker can not only conduct real estate transactions, but earn commissions for arranging mortgages and other types of real estate-related loans. For this reason, a brokers license offers the holder huge potential earnings power.

An agent is a step below a broker. While requiring a license, an agent is normally treated as an employee of the broker and thus the broker is responsible for the actions of the agents under his charge. If an agent screws up, his reputation (and license) as well as his broker's is on the line. Agents can typically conduct the same transactions as a broker, but must do so under the supervision of their boss.

Finally, the term "Realtor" is used to specifically identify a real estate broker or agent who is a member of the National Association of Realtors, or NAR. The NAR is a nationwide trade group that collects member dues, lobbies in Washington and runs marketing campaigns urging Americans to buy homes. The NAR is conspicuous in its role as national housing cheerleader, as it's chief economist Lawrence Yun has been predicting an imminent bottom in prices since early 2006.

1. Is it a good time to buy?

Of any question a buyer is likely to ask his broker (or agent), this may be the first. And the most important. The answer itself isn't nearly as important as how the broker responds.

Any broker that says definitely that yes, this is a great time to buy, should be eyed with skepticism. Without knowing a buyer's specific circumstances, understanding localized market trends and the underlying value of a specific home, saying it is a great time to buy is a sales pitch, pure and simple.

Brokers will often cite low interest rates, high levels of affordability, low replacement costs and home prices that have fallen precipitously from their peaks as reasons its never been a better time to buy. But ask yourself, all those conditions were true six months ago -- was it a great time to buy then?

The proper response to this question from a responsible broker is to answer the question with a question, or questions. How much money have you saved? How long do you plan on owning the home? How much money do you make? How much is your other debt service? What are your contingencies if you lose your job? How is your credit? What are your other motivations for wanting to buy?

Only armed with answers to these and other questions can a broker -- or a buyer for that matter -- determine whether its the right time to buy.